Newmont Corporation (NYSE:NEM) Q1 2020 Earnings Conference Call May 5, 2020 9:00 AM ET
Tom Palmer - President, Chief Executive Officer
Rob Atkinson - Chief Operating Officer
Nancy Buese - Executive Vice President, Chief Financial Officer
Steve Gottesfeld - Executive Vice President, Chief Sustainability and External Affairs Officer
Jessica Largent - Vice President, Investor Relations
Conference Call Participants
Tyler Langton - JP Morgan
Chris Terry - Deutsche Bank
Greg Barnes - TD Securities
Tanya Jakusconek - Scotiabank
Anita Soni - CIBC World Markets
Jackie Przybylowski - BMO Capital Markets
Brian MacArthur - Raymond James
Good morning and welcome to Newmont’s first quarter 2020 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded
I would now like to turn the conference over to Jessica Largent, Vice President of Investor Relations. Please go ahead.
Thank you and good morning everyone. Welcome to Newmont’s first quarter 2020 earnings conference call. Joining us on the call today are Tom Palmer, President and Chief Executive Officer; Rob Atkinson, Chief Operating Officer; and Nancy Buese, Chief Financial Officer. They will be available to answer questions at the end of the call along with other members of our executive team.
Turning to Slide 2, please take a moment to review the cautionary statement shown here and refer to our SEC filings, which can be found on our website at Newmont.com.
Now I’ll turn it over to Tom on Slide 3.
Thanks Jess. Good morning and thank you all for joining our call.
Newmont’s core values of safety, sustainability, integrity, inclusion and responsibility are fundamental to creating long-term value for our investors, host governments, communities and employees. In light of the COVID-19 pandemic, our purpose to create value and improve lives through sustainable and responsible mining is more relevant today than ever before.
Turning to Slide 4 for a review of how we’ve been responding to these unprecedented times from a position of strength, the health and safety of our people and our host communities is paramount in every decision we make. This is why Newmont moved early and quickly, proactively taking steps to prevent transmission of the coronavirus. By taking an informed approach with the advice of the World Health Organization, the Centre for Disease Control and Prevention, and external medical professionals, we fully mobilized our rapid response across management teams in early March and implemented our business continuity plans across the globe.
We’ve implemented wide ranging controls at all of our operations, putting the health, safety and wellbeing of Newmont’s people and communities above all else. These controls include but are not limited to cancelling all non-essential travel, closing our offices and implementing remote work arrangements in early March, significantly reducing the number of people working at our operating sites to just the essential number of people required to operate and maintain the mines, processing plants and environmental control systems, enhancing temperature and questionnaire screening at entry points to our sites, implementing strict social distancing protocols in planes, buses, light vehicles, offices, and dining facilities, developed leadership continuity plans for key roles across the business, increased frequency of deep cleaning and sanitization of surfaces, providing hygiene and health support to nearby communities where employees and contractors live and work, and proactively ramping down certain operations to reduce the risk of transmission to nearby communities with limited healthcare capacity.
We established a global supply chain task force to assess potential risks and develop viable contingency plans that allow us to stay ahead of any potential disruptions. Importantly, we have not experienced any material issues with our supply chain and continue to benefit from our strong relationships and transparent engagement with our suppliers.
Across our sites, we have increased inventory of key supplies to pragmatic levels, ranging from three to six months where possible, and we remain diligent on monitoring critical watch list items. To date, Newmont has no confirmed cases of COVID-19 at any of its sites thanks to the discipline of our workforce in adhering to these protocols.
I am incredibly proud of the way our employees have responded to these challenging times. In addition to their strict adherence to our protocols, they have further demonstrated their commitment by joining the fight against this pandemic in the communities where they live and work. We not only want to protect our people and host communities, we want to build lasting resiliency so that our host communities can thrive after the worst of this pandemic passes.
As a global business with operations in eight countries, we are committed to doing our part to combat this disease and protect our people and their livelihoods. The strength of our business and maintaining robust relationships not only allows us to endure short term disruptions but allows us to reach beyond our sites to create value and improve lives for all of our stakeholders.
Associated with this commitment, we have made two important decisions. First, we have committed to maintain pay for all of our employees through until at least the end of June to support them and their families and remove short term uncertainty. Second, we established a $20 million global community support fund to help host communities, governments and employees. The Newmont Global Community Support Fund builds upon our other local contributions and efforts we have made over the last two months.
With input from local stakeholders, we have identified three focus areas to ensure that our financial support will have the most positive impact and reach those who need it most. These three focus areas are: employee and community health, food security, and local economic resilience. We will closely monitor the progress and outcomes of our support so that we are able to fine tune and improve results along the way with a view to serving as a catalyst to long term resiliency and future community development.
Turning to Slide 5 for a framework on how we are preparing for multiple scenarios, as the COVID-19 pandemic continues to evolve, our deep bench of experienced leaders and proven operating model continue to serve as a competitive advantage. We are proactively planning for and evaluating short, medium and long term risk through a comprehensive framework that involves the following actions: mapping the virus in each of our countries in order to be prepared for a safe and efficient return to more normal operations. For 2020, we’re assuming the greatest impact to operations and financial performance could occur during the second quarter; however, we’re also planning for other scenarios where we could see a resurgence of the virus later in 2020 and early ’21. Finally, we’re evaluating a lower likelihood scenario where there is a recurring seasonal impact from the virus.
We are currently in wave one, and while there is an increasing likelihood for a wave two, we remain optimistic the worst of the pandemic will have passed in the coming weeks after worldwide efforts to contain or suppress the spread of the virus begin to take hold. We are ramping up operations at Cerro Negro, Eleonore and Yanacocha, which Rob will discuss further, and assuming Penasquito is able ramp up in the coming weeks, our 2020 gold production will be towards the lower end of our previous guidance, or approximately 6 million attributable gold ounces, whilst costs are tracking towards the higher end of the guidance range.
In terms of our capital spend, we are still progressing the majority of our development of sustaining capital projects with our key projects progressing on schedule. These key projects include Tanami Expansion 2, the development of sub-level shrinkage mining method at Subika Underground, and a lay back for Boddington and Ahafo. However, our capital overall is trending lower than our original guidance as we have reduced non-essential activities and spending in areas where we were significantly ahead of schedule.
For exploration, approximately 80% of our budget is allocated to near mine activity and a lot of that work is continuing; however, we have put our greenfield exploration on hold as a feasibility study work continues to advance remotely for both Yanacocha sulfides and Ahafo North. We will provide further clarity on our 2020 outlook when Penasquito begins to ramp up; however, it’s worth noting that our guidance for 2021 through 2024 still stands.
Despite the disruption from COVID-19, we are well positioned to withstand this pandemic and, most importantly, Newmont’s long term value proposition remains unchanged.
Turning to a look at our global diverse portfolio on Slide 6, within our portfolio of 12 operating mines and two joint ventures, we have an unmatched eight world-class assets, each of which delivers more than 500,000 ounces of consolidated production per year and all-in sustaining costs of less than $900 per gold equivalent ounce and a mine life that exceeds 10 years. Importantly, particularly in the current context, all are located in top tier jurisdictions that we define as countries classified in the A and B rating ranges by each of Moody’s, S&P, and Fitch.
In addition to our eight existing world-class assets, Newmont has two emerging world-class assets in Yanacocha and Merian. These emerging assets within our portfolio offer substantial upside through further optimization and development over the coming years.
Turning to Slide 7 for a look at our production for the next decade, our stable production profile will generate more than 6 million ounces of gold per year for the next 10 years, underpinned by world class assets and further supported by an industry-leading exploration program and organic project pipeline. This profile is further enhanced with over $1.5 billion per year in additional revenue from producing between 1.2 million to 1.4 million gold equivalent ounces from co-products with silver, lead and zinc from Penasquito, and copper from Boddington. Combined, we will deliver nearly 8 million gold equivalent ounces per year, the most of any company in our industry.
Turning to our free cash flow generation potential on Slide 8, we expect to generate substantial free cash flow throughout the gold price cycle. For every $100 increase in gold price above our base assumption, Newmont delivers approximately $400 million of incremental attributable free cash flow per year. Using our conservative $1,200 gold price planning assumption, our free cash flow would still total more than $5 billion over the next five years and at current gold prices our portfolio will generate around $15 billion of free cash flow over the same five-year time frame. In addition, we have the potential for further upside with tailwinds from favorable oil prices and foreign currency exchange rates. The excess free cash we generate will be used to reduce our net debt and provide additional returns to shareholders. Looking forward, we are well positioned to continue executing our capital priorities and staying focused on creating long term value.
Turning to Slide 9 for a review of our performance against our promises, simply put, Newmont is delivering on its commitments. With world-class assets in top tier jurisdictions, the gold industry’s best production profile of more than 6 million gold ounces per year for the next decade, and the industry’s largest gold reserve base of 96 million ounces, we are firmly positioned for long term success.
In a little over a year since acquiring Goldcorp, we have already realized significant value. We originally committed to delivering $365 million per year in synergies by the end of 2021 but are now on track to realize $500 million of cash flow improvements in 2021, an increase of nearly 40%. We’re accelerating G&A and exploration synergies along with higher than planned full potential improvements. It’s worth noting that these cash flow improvements do not include our share of synergies from the Nevada Gold Mines joint venture.
We have received $1.4 billion in total cash proceeds from divestments, meeting our target of $1 billion to $1.5 billion. Our commitment to leading shareholder returns remains stronger than ever as we returned our first quarterly dividend of $0.25 per share.
Turning to Slide 10 for a look at our first quarter highlights, the strength of both our strategy and operating model is shown through our solid first quarter performance despite the impacts and disruptive nature of the COVID-19 pandemic. In the first quarter we produced nearly 1.5 million ounces of gold at all-in sustaining costs of $1,030 per ounce, and we also produced 339,000 gold equivalent ounces from co-products. We generated operating cash flow of $935 million and free cash flow of $611 million, and we continued to progress our full potential program across our portfolio with a particular focus on the more than $240 million in value we have identified at Penasquito, Cerro Negro, and our mines in Canada.
During the quarter, we continued to strengthen our investment-grade balance sheet, receiving $1.4 billion in proceeds after completing the sale of KCGM, Continental Gold, and Red Lake. We refinanced approximately $1 billion of debt through the issuance of new senior notes at historically low coupon of 2.25%, and we lowered our net debt to adjusted EBITDA ratio to 0.7 times.
Newmont has one of the strongest balance sheets in the gold sector with $3.7 billion of cash and total liquidity of $6.6 billion. In April, our board approved a 79% increase to our quarterly dividend to $0.25 per share from $0.14 per share. Newmont’s first quarter dividend will provide investors with the highest dividend yield of any senior gold miner and is a testament to our financial flexibility, balance sheet strength, and conviction in the stability of our business.
We also continued to execute our buyback program during the first quarter, buying back approximately $300 million worth of shares. In total, we have now retired $800 million or nearly 19 million shares at an average price of just over $42 per share since initiating this program only five months ago, an excellent outcome.
With that, I’ll turn it over to our Chief Operating Officer, Rob on Slide 11 to review our operational performance.
Thanks Tom. Turning to Slide 12 for a summary of our operations, the strength of our diversified global portfolio in top tier locations along with our operating model and capable workforce is a key differentiator for Newmont during this unprecedented time. As of today, 10 of 12 operating mines and both of our joint ventures are operating. These operations represents approximately 90% of our planned 2020 gold production, and the U.S., Australia, Ghana, Suriname, Dominican Republic, Ontario, and Argentina have all deemed mining an essential activity.
While we have significantly reduced the number of people working on our sites by approximately 50%, which is equivalent to more than 10,000 employees and contractors, our overall productivity remains high and our workforce is very focused on safely delivering to our plans. We have stopped all non-essential work, our processing plants are being run near 100%, and underground development is progressing mostly to plan. Moving to even time rosters means there is more downtime at the start and end of shifts, but given the longer rosters now being worked, we can recoup most of this gap.
We are no longer hot-seating equipment and are making sure to spend the time needed to sanitize all interpersonal [indiscernible] sites; however, we consider any time required for these activities as a simply must-do investment to protect the health and the safety of our workforce.
In mid-March, we proactively placed four operations in care and maintenance in order to protect the health of our workforce, neighboring communities, and to comply with government mandated restrictions. Three of these sites - Yanacocha, Cerro Negro and Eleonore, have since resumed operations.
Yanacocha safely ramped down on March 17 in response to travel restrictions. Limited personnel remained on site to perform essential work, including security, water treatment, environmental protection, and gold production continued from leach pads. We are remobilizing and plan to restart the mill and surface mine operations in the near future, given that as part of the Peru Economic Reactivation Plan, the president has decreed that surface mines will be allowed to start.
At Cerro Negro, operations were also placed on care and maintenance on March 23 due to travel restrictions. Essential personnel remained on site to maintain infrastructure, continue environmental management, provide security, and continue ground control activities. We are executing our safe restart plan, including remobilizing our workforce, and the site is on track to having a significant proportion of operations working again this week.
At Eleonore, we ramped down activities on March 23 to comply with the Quebec government’s restriction on non-essential travel within the province in order to mitigate the risk of transmission to northern and remote First Nations communities. Following the directive given by the Quebec government on April 13, mining activities are no longer restricted. We have been working closely with the Cree First Nation Grand Council and the Cree Health Board to determine an acceptable path forward that protects our employees and communities, as we take the risk of transmission from the virus from other Canadian [indiscernible] communities very seriously. Just last week, we agreed to a path forward and have begun ramping up operations at Eleonore.
At Musselwhite, we proactively moved to care and maintenance on March 23 in order to minimize fly-in/fly-out activity to prevent the possible transmission of the virus into communities, including nearby First Nations communities in northern Ontario. We are developing plans to safely and efficiently resume operations.
In aggregate for the first quarter, we incurred approximately $27 million of care and maintenance costs from these four operations which are not adjusted out of our results or unit costs. Across our entire portfolio, we also incurred approximately $2 million of COVID-19 specific costs related to items like health screenings, travel arrangements, and storage costs.
Subsequently on April 12, Penasquito moved into care and maintenance and we have continued to engage with government authorities at all levels to ensure they understand Newmont’s industry-leading response to COVID-19 globally and our belief that the mine can operate safely during this time. Once we are able to resume operations, the site is well positioned to ramp back up quickly and efficiently over a two-week period. As Tom mentioned, we look forward to providing further clarification on our 2020 outlook as we get this operation back up and running.
Of the sites in care and maintenance, our overall spend is approximately 50% of our normal CAS with approximately 30% coming from our important decision to continue to pay employees through June and the remaining 20% for the traditional care and maintenance activities, such as environmental management and security costs. This investment helps to ensure we are very well positioned to ramp up safely and efficiently with the full support of our workforce and the local communities.
Turning now to Slide 13 for an update on Australia’s performance, at Tanami I am very proud of our team for quickly adapting to the unique requirements of a fly-in/fly-out operation. Their adherence to protocols while altering transportation schedules and shift changes is commendable. In addition, the willingness and dedication from our workforce to relocate to Darwin in the Northern Territory from other parts of Australia has allowed us to mitigate the risk of interstate border closures and continue operating.
At site, we achieved solid performance during the first quarter as an increase in ore tons mined helped to offset lower grade from mine sequencing, and we have improved load and haul productivity by establishing underground waste dumps to reduce haulage to surface and increase mining rates.
Across Newmont, we are very committed to continually improve our safety performance and utilize technology where it makes sense to do so. One great example is the industry-leading robotic technology for diamond re-drilling we are deploying at Tanami which removes our employees from the line of fire when drilling and removes the fatality risk associated with equipment entanglement. During 2020, we will integrate five robotic rigs to the fleet and will replicate this impressive technology at other Newmont underground sites globally.
Looking ahead, I’m really excited about the progress the team is making at the Tanami Expansion 2 project, which is progressing well as we begin ramping up mine development. Our team advanced 560 meters in February and March, well exceeding planned rigs. In March, we finished the top section of the pilot hole, breaking through to the mid-shaft chamber at 655 meters, and the team are now working to establish a raised bore rig underground in preparation for drilling the bottom section of the pilot hole down to 1,460 meters. We continue to award long lead procurement packages and decided to use Australian steel for construction of the crusher and head frame to avoid any potential delays from the delivery of Chinese-sourced products during this period of uncertainty.
At Boddington, our three-year stripping campaign in the south pit is progressing well and we expect to reach higher grade late this year and continuing through 2021. We approved the autonomous haulage system in February and our investment of $150 million began in April with an order for 29 new CAT 1793 haul trucks, along with plans to retrofit seven existing CAT 793Fs. This investment in technology will enhance safety and improve productivity to generate significant value over a 14-year reserve life.
Lastly, in January we completed the sale of our 50% ownership interests in KCGM for cash proceeds of $800 million, and we continue to advance the sale of our power business.
Turning to Africa on Slide 14, after delivering a record 2019, we clearly communicated that the region would have lower production levels in 2020 as we continue to invest in the future of our world-class Ahafo operation. Both of our Ghanaian mines continue to operate and our team responded quickly to ensure we have preventative controls in place for COVID-19 while progressing critical path items.
At Akyem, solid throughput and mill recoveries helped to offset lower grades due to sequencing during the first quarter. The site continues to drive improvements at both the mine and mill, and our team is leveraging the strength of our integrated operating model by working closely with our processing and asset management operation support hubs in pair.
At Ahafo, we continue to progress stripping at the Awonsu and Subika open pits while advancing underground development for the updated mining method at Subika Underground. Our transition to a more productive underground mining method at Subika Underground remains very much on track and we anticipate ramping up our ore tons mined in the second half of this year. In fact, our year-to-date development rate average has been about 35 meters per day.
At Ahafo North, our project work is advancing remotely with a full funds decision still expected in 2021.
Now to our North America operations on Slide 15. In the first quarter, we continued to advance critical path work and our full potential improvement program which will allow us to maximize value from these assets and step up our performance over time. For example, at Penasquito our focus on the basics and rolling out full potential had the site breaking records for tonnage through the augmented feed circuit within just a few months. The site also achieved its highest ever production of silver, zinc and lead during the month of March and achieved record gold recovery from the pyrite leach plant.
For those of you who had the opportunity to attend our site tour in February, I trust that our progress towards improving value at this world-class polymetallic operation was evident, and I remain very excited about the opportunity to eliminate constraints, reduce costs, and increase productivity, ultimately allowing us to extend mine life through resource conversion.
Another significant milestone we recently achieved was to finalize a definitive agreement to resolve all outstanding disputes with the community San Juan de Cedros, one of 25 neighboring communities near the mine in the State of Zacatecas. This agreement was signed with community-elected representatives and will be ratified in a general assembly that will take place when COVID-19 gathering restrictions are lifted by the government. The agreement was developed and supported through the dialog table sponsored by Mexico’s Federal Department of the Interior and representatives of the state government of Zacatecas. Together with the water plan signed in December 2019, we are pleased and excited to bring months of negotiation with the Cedros community to a close and really look forward to sustainably operating in this region for decades to come.
The definitive agreement also sets forth terms for the Penasquito mine to occupy more than 10,000 hectares of the Cedros Adheridos land for exploration, mineral production, and other operational purposes, and resolves all outstanding disputes between the two parties. This world-class asset already has reserves of approximately 26 million gold equivalent ounces, but the significant exploration potential in this prospective district will allow us to extend value delivery for decades to come. We are very pleased with the outcome of the agreement and believe it is the best path forward for both parties to develop a long-term partnership to create value and improve lives, shifting the dynamic from confrontation to cooperation.
Lastly, in response to placing the site on care and maintenance on April 12, we are working with the government to determine a timeframe for ramp-up of operations. The Zacatecas region has one of the lowest rates of cases of COVID-19 and we believe our workforce can be kept safe by limiting personnel on site and enhancing safety and health protocols around social distancing and hygiene.
Turning to Canada, at Eleonore we’d previously communicated that we would step down gold production, driven by mine sequence changes and our ongoing efforts to integrate our geology and geotechnical models to optimize a life of plan to extend mine life. With the site previously in care maintenance, the team took the opportunity to proactively refresh their roster schedule to be more efficient while also progressing full potential remotely as we move into the deliver phase and leverage our experience from other underground operations.
The team has also spent time prioritizing the full potential initiatives that will be implemented as we restart, including an asset management improvement plan. With a new general manager in place, we are strongly focused on the day-to-day basics to ensure a strong foundation is in place as we start ramping the operation back up.
At Musselwhite, our team was exceeding their commitments and the conveyer installation was approximately 65% complete and well ahead of schedule before we placed the site in care and maintenance in late March. We now have every part for the conveyer installation in Thunder Bay, and installation of the conveyer will be the first thing to ramp up after a decision is made to resume operations. The Musselwhite materials handling project is 95% complete and will be ready for a full system test once the conveyer is installed.
Full potential is progressing virtually with a focus on improvements in underground development productivity, enhanced chucking performance and technical updates to ore body modeling, and the site is ready to come back stronger than ever. In fact, we currently have four to five stopes open, and prior to moving to care and maintenance we safely and successfully restarted the mill after nearly 10 months down and produced well ahead of plan approximately 15,000 ounces in the first quarter.
Overall, we remain well positioned to ramp back up safely and efficiently once we have support from our neighboring First Nations communities. Should this occur over the next several weeks, we still anticipate being back to full production in early quarter four.
North Porcupine and CC&V continue without interruption, and finally, we completed the sale of Red Lake to Evolution Mining for $375 million and future contingent payments of up to an additional $100 million tied to new resource discoveries.
Rounding out the regions is South America on Slide 16. At Merian, we delivered strong first quarter performance with higher ore tons mined as the site continues to benefit from productivity gains. In March, Merian’s processing team achieved 22 consecutive shifts without downtime, smashing their previous record of 14 shifts, an example of ongoing operational excellence despite challenging times. Yanacocha production increased during first quarter as our real leeching program successfully delivered higher ounces, and while the site was in care and maintenance, we continued to recover ounces from the leach pad. At Cerro Negro, mine sequencing impacted grades in the first quarter but we made solid progress to improve operational standards and apply back-to-basics mining practices, which includes improving development, ground control and backfill practices.
Our work to develop out to Amelia [ph] was also progressing well prior to the site ramping down and we still expect to reach this new mining area later in 2020; however, we expect 2020 production and costs to be impacted due to the COVID-related shutdown and as we continue to improve operational standards.
Looking forward, study and engineering work continues to advance remotely for Yanacocha sulphides and we remain on track for a full funds decision in 2021. Finally, an important milestone was passed recently and I’m very proud of the project team, who just surpassed one million safe hours worked in March.
With that, I’ll hand it over to Nancy on Slide 17.
Thanks Rob. Turning to Slide 18 for the financial highlights, during the first quarter Newmont delivered solid results with revenue of nearly $2.6 billion, an increase of 43% over the prior year quarter with the additional sales from our acquired operations and higher gold prices, adjusted net income of $326 million or $0.40 per diluted share, and adjusted EBITDA of more than $1.1 billion, an increase of 63% from the prior year quarter. Cash from continuing operations was $939 million, driven by higher adjusted EBITDA, and free cash flow was $611 million, an increase of 75% to end the quarter with more than $3.7 billion of cash on hand.
Turning to Slide 19 for a review of earnings per share in more detail, first quarter GAAP net income from continuing operations was $837 million or $1.04 per share. Adjustments included $0.73 related to the gain from our sale of KCGM, Continental and Red Lake, $0.22 related to the change in fair value and impairment of investments, $0.09 related to the extinguishment of debt, $0.24 related to tax adjustments and valuation allowance, and $0.02 of other charges. Taking these adjustments into account, we reported first quarter adjusted net income of $0.40 per diluted share.
Turning to Slide 20, as Tom mentioned, Newmont continues to respond to the COVID-19 pandemic from a position of strength, and there’s been no change in our industry-leading capital allocation priorities which include maintaining and strengthening our investment-grade balance sheet, growing our margins through delivery of our full potential program which drives incremental cost and efficiency improvements regardless of current gold prices while also growing our reserves and resources through disciplined investment in our highest returning projects, and returning excess cash to our shareholders.
We ended the quarter with total liquidity of $6.6 billion, including $3.7 billion of cash on hand and our undrawn and fully available $3 billion revolving credit facility. Our net debt to EBITDA ratio improved to 0.7 times, and we proactively refinanced $1 billion of debt at historically low coupon of 2.25%, allowing us to save approximately $17 million in annual interest payments and also improving the profile of our out year maturities.
We have continued to invest in profitable projects such as the Tanami Expansion 2 and Musselwhite materials handling, and as Rob mentioned, our study work to progress the next wave of profitable production at Ahapo North and Yanacocha sulphides is advancing.
Newmont remains committed to sustainable shareholder returns across the cycle, and we continued to demonstrate this in the first quarter. Two weeks ago we declared a first quarter dividend increase of 79% to $0.25 per share, and we continued to execute on our share buyback program, repurchasing approximately $300 million during the first quarter. Since initiating the program in early December, we have completed 80% of our $1 billion authorization with nearly 19 million shares retired at an average price of $42 per share. With our shares currently trading around $60, our buyback program has been incredibly accretive to shareholders.
As a reminder, we build our annual business plan based on conservative assumptions, including a $1,200 gold price, and for every $100 in gold price above our base plan, we’ll generate an incremental $400 million in attributable free cash flow annually. With gold prices currently around $1,700 per ounce and favorable oil prices and foreign exchange rates, these tailwinds will more than offset any short term disruptions as we manage through these challenging times.
With that, I’ll hand it over to Tom to wrap up on Slide 21.
Concluding on Slide 22, Newmont has a long and proud history of safety leadership, ESG stewardship, developing the industry’s best talent, and focusing on operating discipline and profitable growth. From this foundation we remain focused on improving our ability to deliver differentiated, superior and sustainable shareholder returns. We will do this by developing our people, optimizing our assets, delivering our best projects, exploring our most prospective properties, and strengthening our balance sheet. I’m very excited to continue strengthening our position as the world’s leading gold company with a workforce and culture of determination that are second to none.
Thank you for your time. With that, I’ll turn it over to the Operator to open the line for questions.
Our first question will come from Tyler Langton of JP Morgan. Please go ahead.
Good morning Tom, Rob and Nancy. Thanks for taking the questions. Hope you’re all doing well.
I think you mentioned, Tom, that mines representing 90% of plan production were operating. I was just wondering, are those operating at full rates or are there any sort of limitations on them from COVID? Then with costs, I think you mentioned that the cap costs would be at the higher end. Can I get a sense of what you’re also assuming for currency and oil and if there’s a benefit there?
Thanks Tyler. Please stay with us, Tyler, and the other people who ask questions - we’re all located at different locations around the globe on our telephones at our homes, so hopefully technology bears with us. I hope everyone on the call and your families are all safe and healthy.
Tyler, probably the operations that we’re ramping up in Cerro Negro and Eleonore, and to a lesser extent Yanacocha, there will be a fairly slow ramp-up at Eleonore and Cerro Negro as we work our way through the logistics of moving people around Argentina to get them to work, so we want to work with our employees and work with the various stakeholders at a national, provincial and local township level to make sure we can move people through the country, through the provinces to get them to work, so ramp up will be a little bit slower at Cerro Negro as a consequence.
Similar at Eleonore, we held back when the Quebec government lifted their restrictions because we wanted to have the full engagement of the First Nations, the Cree, and we’ve been working with them to work through the protocols we had for operating. Again, we want to work with them and slowly bring people back and demonstrate to them that we can safely manage the risk of spread of infection around those communities.
At Yanacocha with the decree from the Peruvian government the last couple days, it will allow us to ramp back up both milling and mining operations, so that will move out of care and maintenance pretty smartly. The rest of our operations around the globe, as Rob indicated in his remarks, are largely operating as expected. We are seeing delays at shift change, we are seeing delays associated with hot seat changes where you can’t do that--you need to clean down vehicles before another person gets on. But a number of locations, we’ve extended our shift roster through this time, so you win back some of that efficiency through those longer roster times.
What I might do is ask Rob to talk to some of the costs, the question you asked, and I’ll get Nancy to talk to some of the tailwinds and when and how we might see that coming through.
Just in terms of our broader costs, we are tracking to the higher end of our guidance. We’re really wanting to see--as we indicated in our remarks, we’re wanting to see Penasquito come back out of care and maintenance. We’re cautiously optimistic on that front. We’ve got some very good engagement going on with the Mexican government. We have presented our plan for how we would operate Penasquito and manage the risk of infection. We’ve based that plan on what I consider the benchmark of the mining industry globally, the work the Australian government and the Australian mining industry has done, so we have leveraged that work. Those discussions have gone very well. We’ve also got great support from the U.S. government and the U.S. embassy in those discussions with the Mexican government.
We’re cautiously optimistic. We want to see through and out the other side of a decision being made to come out of care and maintenance, and then we’d be in a position to provide some update on our guidance, both production and unit cost.
Rob, is there anything you’d add in terms of Tyler’s question around costs?
Thanks Tom. I’d just add a couple of things. Tyler, I think just working from the basics, what we’ve clearly outlined is that when we’re in care and maintenance, that’s typically 20% of our CAS. Because of the decision that we made to provide continuity and pay, that takes it up to 50% even when you’re in care and maintenance, so that’s the kind of base point.
Now as Tom mentioned, at the likes of Eleonore, at the likes of Cerro Negro that we’re progressively building up, so you can expect to see that to go from 50 to 60 to 75 over the coming weeks, so that’s roughly the way in which I would approach it.
And Nancy, do you want to cover some of those tailwinds on foreign exchange and oil?
Yes, thanks Tom. Morning Tyler. We do publish an annual sensitivity guidance, and just a couple notes on that. We had budgeted oil at $60 a barrel and our sensitivity is for every $10 change in the price of a barrel of oil, it’s a $25 million increase in attributable free cash flow, so you can do some of the math on that.
We monetize on the Aussie dollar. We budgeted a $0.75 rate. If a nickel change in the Aussie dollar rate, that’s $40 million of additional attributable free cash flow, so there certainly will be some tailwinds associated with WTI and with FX as we think about where we might land versus plan.
That’s helpful. Just a final question on capital allocation, I guess you ended the quarter with $3.7 billion of cash and have completed 80% of the buyback. Obviously I understand that COVID creates some uncertainty, but can you just share some thoughts around capital allocation going forward with buybacks and the dividend?
Thanks Tom. Nancy, you want to pick that one up as well?
Yes. I think the important point on our discipline around capital allocation certainly has not changed. We’ve been very clear about sharing with shareholders and also reinvesting back in our business, and we will continue to favor those principles. When you think about the dividend, that increase was predicated, as we announced earlier this year, on an oil price--sorry, on a gold price of $1,200, and so we still maintain that at $1,200 that dividend is certainly affordable.
On the share buyback, our view is that we had the billion-dollar program, we’re about 80% into that. We were able to get almost all those shares well under $45, and so our view is we’ll continue to keep that program outstanding and we’ll continue to think about what we will do, but if you consider how our capital allocation will be, it will be about half back in the business and then the other half we’ll continue to focus on balance sheet, dividend and share buyback, so all of those tools are still in the toolbox and up for consideration.
Great, thanks so much.
Our next question comes from Chris Terry of Deutsche Bank. Please go ahead.
Hi Tom, Rob and Nancy. I hope you’re all faring well.
I had a couple of questions. Firstly on the free cash flow, just thinking about that the next couple of quarters, with the operations you have offline, I just wondered where there’s working capital implications from, I guess, overstocking some of the raw materials on site, which is obviously sensible, and just some of the moving parts on the cost side. Just wondered if you can comment, maybe Nancy, on free cash flow expectations or some of the moving parts for 2Q and maybe 3Q. Thanks.
Sure, I’d be happy to take that one. I really don’t think we’ll see much, no real significant changes. You might see later on in the year, there will be some tax payments in Q2, but fundamentally in order to get what we need at site, it’s not going to be a materially significant change on working capital numbers.
Okay, thanks. Then just another one, maybe again for you, Nancy, just in terms of the capex. I think it was mentioned earlier in the call it’s likely to be lower this year. Do we just think of that as staying the same amount out for 2024, so whatever you don’t spend in 2020, you would spend in latter years?
Yes, I think what you’ll see is just as a result of some of these sites being in care and maintenance, you’ll see some of that capex roll from 2020 into ’21, and likewise out the backside of ’21, so some of that will get pushed over time. I wouldn’t anticipate a big, quote-unquote, catch-up if you will in the plan period as we’ve announced.
Thanks Nancy. Just a last one from me on Musselwhite, it the decision there on the delayed start-up, is it purely based on COVID or have you taken the time right now while it’s offline to do further work on materials handling, etc., and there’s an advantage to spending the time while it’s offline getting that all right, and then bringing it back online? Just wondered if you could clarify some of your thinking there.
Yes, thanks Chris. The decision to put Musselwhite into care and maintenance was made on the basis of the engagement we had with the local communities, the local First Nation communities in around that mine, and their very serious concerns around the vulnerability of those communities to the spread of infection, particularly when you have a workforce that heads up into northern Ontario from southern Ontario and further afield. So engaging with that community and addressing their concerns, we made proactively the decision to put that operation into care and maintenance, and that includes the team we had constructing that conveying system.
There’s a small team on site who are basically keeping equipment turning over so it’s ready to restart again and managing environmental control systems, and we continue to engage very closely with those communities, as we’re doing in other parts of the world, to demonstrate the protocols we have in place that are working very effectively around the world, and we remain hopeful that as we can demonstrate our ability to manage the risk of infection that we can start that operation back up again and get the construction of the conveyer completed, but just concerning that we have stopped all work at Musselwhite, including the conveyer construction.
Okay, thanks Tom. Actually, just one other one, or maybe two small parts, but just to clarify on the 90% of production that’s currently running, do we just adjust on a GEO basis--obviously with Penasquito offline, just adjust directly for Penasquito to think about it on a percentage of GEOs online? Is that the right way to think about that?
We’re just looking at each other on whether it’s Nancy or Jess. Do you want to pick up that one, or we can take it offline with you, Chris, and give you some direction on that.
Okay, actually one other one, just reading on Suriname a little bit, just wondered if you could comment a little bit on the repatriation, some of the currency constraints within that country. Does that impact anything at all? Thanks.
Thanks Chris. I’ll get Nancy, probably best to comment on that one.
Yes, absolutely Chris, and on your other question - sorry, I was pausing for a moment, keeping myself up quickly enough, but the question on that was, it is not GEOs, it’s really gold only.
On the Suriname question, no, we do not have concerns there. We have a ratified investment agreement that covers this particular issue, so we are not concerned about the currency controls there.
Okay, thanks everyone. Appreciate it.
Thanks Chris, take care.
Our next question comes from Greg Barnes of TD Securities. Please go ahead.
Yes, thank you. On the definitive agreement that you’ve concluded with the Cedros community, are there financial terms in that deal that you need to address?
Thanks Greg. Rob, did you want to pick that one up, or we do have Steve Gottesfeld on the line, who could pick that up as well. Might one of you answer Greg’s question?
Okay, so I may just kick off and then ask Steve to pick it up. Hi Greg. There most definitely is financial implications to the agreement. Certainly that’s been a large part of the negotiations. As you’ll remember, the negotiation involved land rental, it involved water, it involved compensation, it involved infrastructure improvements, and as well as employment, work opportunities, etc., so there was a variety of things.
But what I’d certainly say before Steve comes in is that we are very, very pleased with those outcomes and certainly we believe that it’s very fair, very reasonable, and it gives us that certainty moving forward.
Steve, do you want to add to that?
Sure, thanks Rob. The only thing I would add really is that it is all within our budgeted plan, so where we ended up landing is consistent with where we had expected to go, and so while there is a water component to this which is a longer term commitment, which was also part of the plan, the other amounts really have all come in line, so no impact on anything to do with guidance or anything like that based on these agreements.
That’s great, that’s very helpful. On the capex--
Greg, the numbers are relatively low--sorry, Greg. The numbers are relatively low. It’s not hundreds of millions of dollars. It’s a few million dollars.
Okay, good. That’s great. On the capex, it was low in the quarter relative to the old guidance. Does that reflect just delays in spending at some of the operations that were shut down, or is that a conscious effort to bring capex down for this year?
It’s mainly COVID-related, Greg. You are seeing COVID-related delays, and it’s largely linked to where we have made a deliberate decision to move non-essential people, or only keep on site people who are essential to keeping mines, processing plants and environmental control systems running. Where we were well ahead on sustaining capital spend, we’ve made a decision to slow that down and actually move people offsite and delay some of that spend, and protect against the risk of infection spreading.
Similarly with some of the development capital projects like Tanami 2, we focused on what the critical path was in that project and then dropping off some work in areas, for example we were building a new camp out where the underground mine is. We’ve slide that work down because it’s not on the critical path.
Sustaining capital this year is probably tracking to around the $900 million mark, development capital around the $500 million mark, so some of those rates you’re seeing now will probably hold through the year. We’re probably looking capital somewhere around $1.4 billion across both sustaining and development capital.
Great, thanks Tom. That’s helpful.
Our next question comes from Tanya Jakusconek of Scotiabank. Please go ahead.
Good morning everybody. Thank you for taking my questions. Rob, maybe for yourself and for Tom, I’m just looking out - you know, you gave us some amount for the impact of COVID on your cost structure in Q1, but as we go through this COVID and let’s say everything sort of normalizes to the new norm, are we going to be taking additional costs through the cost structure for COVID, either all of this social distancing that’s impacting us through additional costs and/or productivity?
Tanya, I’ll kick off and I might get Rob to comment, and Nancy might even want to chip in with a few comments as well.
I think we’re in a new normal. I think for many, many months we’re going to be managing social distancing and we’re going to be managing screening at our sites, so as I think about moving people around a site on buses, I think about staff meetings, I think about dining facilities, I think about office cleaning, I think about plane flights, think about the people you have doing temperature screening at the entry point to sites, I think we’re going to be--I think that’s going to be with us and with the mining industry for a long time to come, so some of those costs that you’re seeing, we’ll get more efficient with those costs, but I think some of those costs that we’re seeing, you’ll see part of our cost base going forward. In the overall scheme of things, they’re not huge, but they will be part of the cost going forward.
Nancy or Rob, do you want to chip in?
I’ll kick off, Tom. Hi there, Tanya. I think what COVID-19 has also done for us, it’s also sharpening our focus. We already had a very keen eye on productivity before this, but what we have found is that because we’ve stood down about 50% of people at our sites, those non-essential personnel, it really allows us to take the opportunity to say are they actually needed back on site or should they be based in regions, should they work from home, or ultimately should they still be working for us at all. It does give us the opportunity to really think about how the business is running and what we can do.
I think similar to doing the earnings call this way today, it’s also allowing us to think about the travel that we’ve been doing in the past and the way in which we’ve been communicating, the face-to-face meetings, etc. There’s a whole host of improvements, I think, that we can make as a result of this.
Just to echo what Tom said, we are into the new normal, that certainly we have got additional costs, but I’m very hopeful that given the creative minds that we’ve got, given the use of technology, given the way in which we plan, that we may in fact see in some areas a significant increase in productivity rather than a reduction.
Nancy, do you want to add anything?
I think that’s exactly right. It’s a great time for us to really evaluate our processes and consider how we think about productivity across the globe. I would note that we will be adjusting out any specific COVID-related costs, and some of those care and maintenance costs for us in particular as a U.S. GAAP filer compared to other miners is going to be a little bit less, so the rules around the U.S. adjustments will be smaller than you’ll see in other places. But we will capture those and indicate those in our filings, so there’s the two pieces of it, is the actual costs related to COVID, but I think Rob makes the point it’s just a really good opportunity for us to take a new glance at everything and really think about our productivity at all sites and everywhere across the globe. We’ll keep on that path.
Okay. Maybe Rob, when you were reviewing some of the assets and some of your development work that you are doing, and you had said at several sites it was ahead of schedule, it appears that in some areas, your productivity is still quite high, it has not been impacted. Is that a fair statement?
That’s correct, Tanya. We’ve got some areas which are progressing very well, and if I pick on a few that--you know, at Subika Underground with sub-level shrinkage, the advance rates there; at Tanami and even at Musselwhite before we stopped there, we were making terrific progress on the conveyer belt. At Penasquito, one of the unfortunate things post the visit, we’d broken a whole host of records for the site as well, so in general we’ve been very, very pleased about how things have been operating.
But the likes of Boddington, Akyem, Ahafo, Tanami, CC&V, Porcupine, they are all still producing very well and very nicely, Tanya.
Okay, that’s good to hear. Thank you very much and good luck, everyone.
Thanks Tanya, stay safe.
Again, if you would like to ask a question, please press star then one.
Our next question will come from Anita Soni of CIBC. Please go ahead.
Thank you, good morning guys. I just had a question on Penasquito. Could you--I’m assuming that one continues to remain shut down at this point, and I apologize - I jumped on late. Could you give us an idea of how you view that re-ramp going over the next couple of quarters?
Thanks Anita, it’s Tom here. Again, I’ll start off and get Rob to chip in as well.
I think on Penasquito, if I’ve understood your question correctly, it still is in care and maintenance, ramped down mid-April. We are cautiously optimistic. We’ve had some very good engagement with the government and good support from the U.S. government, U.S. embassy in helping us engage with the government, and we’ve also presented, in fact a couple of times, in fact more than a couple of times now with multiple iterations our plan for a re-start. We have been able to draw upon the protocols we have in place elsewhere, which are working very, very effectively, to demonstrate to the Mexican government that we can safely ramp up Penasquito, particularly given its location, remote location in a province that has a very low rate of the virus and a mine site, as you know, that’s remote with its own airstrip and self contained accommodation.
So we remain cautiously optimistic that through the course of this month that we will start to get some approvals to re-start, but we want to see that happen before we take a step and start to update guidance and the like. We continue to engage with the government, answer the questions that they have of us, and cautiously optimistic that it can ramp up in the near future.
If we do get that green light, it’s only a week or two to get Penasquito back up and running, and then it’s back to where we were through the first quarter.
Rob, is there anything you’d add to that?
I think just a couple of other backgrounds things, Tom. Certainly whilst we are lobbying very hard, the 18th of May is the date that we are very much focused on, and that’s what the government has said, that industries who can demonstrate they’ve put COVID controls in place can start.
Just to add to what Tom said, currently in Mazapil there have been zero COVID cases, and that’s obviously where the mine is at, so that all helps. Again, we’re cautiously optimistic, we’re working hard, the site’s in great condition, and when we do and are able to ramp up, it will be straight to phase six in the pit hopefully, where there is higher grade and get back on track as quickly as possible.
Thank you, that’s it for my questions.
Right, thanks Anita. Take care.
Our next question will come from Jackie Przybylowski of BMO Capital Markets. Please go ahead.
Thanks very much. Just want to follow up a little bit more on Anita’s last question. Under the impression that the Mexican government has approved restarting mines just generally May 30, so is that the case where if you were able to demonstrate the safe ability to restart, you may be able to restart earlier, but the worst case scenario would be May 30, or do you envision there’s potential that you could be closed longer than that if they don’t decide in your favor?
Jackie, I think there’s a couple of aspects to answering this question. One is the Mexican government, as many governments are, and Mexico in particular is I think the virus hit Mexico a bit later than some other countries, so the Mexican government is still grappling with how they manage the spread of this virus, so as they work through that, those circumstances for them more broadly move and change. What we’re working with on the basis is that our plans we have presented to the Mexican government are robust, they’re very pleased with those. We operate in a location in Mexico that is remote and we can manage our protocols very well, and they’ve indicated to us that we’d be part of the pool of companies that they’d be looking at for some approvals around May 18.
But I don’t want to get in front of the government. Engagement is good, there are good plans in place, but I want to see that approval come through and then we can go forward and provide some direction about Penasquito. We continue to support the government and wait for them to go through their process and give us their approval, so we’re cautiously optimistic but don’t want to get ahead of ourselves.
Rob, would you add anything to that?
I think, Jackie, the only other additional one I would say is that since the order from the government came out, we’ve been working with the government from day one, and I think as Tom said, every single day we’ve been working with them, we’ve presented our case, so we think we have got a very strong position. But you know, May 18 is what the government has indicated, but as Tom rightly said, that could change. But that’s what we’re focused on at the moment and given that our processes and our procedures are of a very, very high order, we remain quite hopeful. But we’ve had a tremendous amount of lobbying, this is not a last minute case at all, and we’ve been with the government and supporting the government and the community every step of the way, so we’re known about, we’re understood, and very hopeful we can be one of the first to lead the way and show the Mexican mining industry how to best do it.
Got it, thanks. Maybe just a second question, if you wouldn’t mind maybe giving us an update on what you’re thinking on capital allocation. I know you’ve just recently raised the dividend. With strong gold prices, can you maybe just give us an update on what your thinking is in terms of dividend, buyback, and other capital allocation decisions you’re making? Thanks.
Thanks Jackie. I’ll ask Nancy. Nancy, I’ll just you a warning now to get off mute, Nancy, and I’ll ask you to answer the question. She’s had a few technical challenges.
Yes, I’m failing at the bingo game this morning. Thanks very much.
Jackie, really our commitment to disciplined capital allocation has not changed. The way we’re thinking about it is continuing to consider about half of the free cash flow invested back in the business in terms of the long term side of things from a project and advanced work in exploration and some of those pieces, and then the other piece is really returning cash to shareholders.
As a reminder, with our five-year guidance and now even the 10-year guidance that we’ve given, we’re really thinking about our contributions and our cash flow through the cycle with crisis both high and low, so you’ll see us continue to invest in the business on the one side and on the other side of the ledger, you’ll see us continue to do the work that we’ve demonstrated around improving the balance sheet, really working on our out year debt towers and improving those rates, and improving the way that looks over time.
We’ll do exactly what we’ve done on the share buyback, which was incredibly accretive to shareholders, and then the other piece of that was really what we’ve done with the dividend, and so as we are in this period of time where we’re generating significant free cash flow, those principles around capital allocation have not changed and we’ll continue to adhere to those and consider ways to provide value back to shareholders, but also maintain that investment in our business, so that discipline really hasn’t changed in any way.
Great, thanks very much.
Thanks Jackie, take care.
Our next question is from Brian MacArthur of Raymond James. Please go ahead.
Good morning. I want to follow up a little bit on Tanya’s question. Can you remind me where we are on getting autonomous haulage working at Boddington? The second part, I guess, is just in this COVID-19 world and looking at longer term cost structures, does this all accelerate moving autonomous haulage to some of the other mines? Obviously there’d be a distancing advantage there, and potentially a cost savings.
Thanks Brian. I’ll kick off and then pass to Rob.
I think it’s more than just autonomous haulage, I think it’s the use of technology and automation, whether it be open pit or underground. I think there is certainly an opportunity that we’re seeing where we’re implementing technology now that has more of a distance case for implementing technology and allowing more work to be done with automated equipment, but the other thing we’re seeing is the investment we made in technology to be able to work remotely is working very effectively.
As Rob talked about, the ability to have less people on operating site but still be able to work very effectively supporting an operating site out of regional location or a central location, like Denver, is working very, very well, but also just how many people do you actually need to run our business sustainably. I think in this new normal that we’re going to have going forward, the technology beyond automation is giving us many opportunities, and we’re actually seeing how it can work very effectively.
So as we talk about the three scenarios that we’re looking at and we’re modeling, we are actively talking about how do we re-shape this business in the context of having impacts from this pandemic that are going to live with us for many months, many years ahead.
In terms of your specific question around automation and autonomous haulage at Boddington, Rob, did you want to pick that one up?
I certainly will, Tom, and thanks for the question, Brian. It’s moving at pace. We have ordered the 29 793s, so that well and truly in the CAT system and we’ll start seeing those arrive later on in the year. We continue to be very excited about what that’s going to be like, but that’s and well truly on track. As you rightly said, it not only improves safety, it can improve productivity very significantly, and that’s what the team is very much focused on, as how do we improve the productivity with these trucks.
I think just to build on a couple of other things that Tom said, in terms of our automation plans, the sub-level shrinkage in Africa, one of the key reasons for changing to that was the ability to potentially automate that in the future. Our relationships with the likes of CAT and the introduction of Minestar, the autonomous drills that we’ve got at Penasquito, so we’ve got the hardware but it’s also the data, and what you do with that data is just so important.
One of the key differentiators, I think, with Newmont is the operating support hubs that we’ve got in Perth and we’ve got in Denver, where you actually monitor the maintenance performance of all your equipment and also your mill performance, and you’re able to give that feedback real time, so in many ways it’s not just automation, which I think people think more and more about, it’s also the way in which you use data and place people, where you put your expertise, and giving that real, live feedback to our personnel out in the field.
But the good news is the autonomous trucks at Boddington are very much on track.
Thank you very much.
Thanks Brian, take care.
This concludes the question and answer session. I would like to turn the conference back over to Tom Palmer for any closing remarks.
Thank you everyone for joining us today on this call. Thank you for your interest in Newmont, and most importantly please take care of your safety, your health, and please look after your families. Look forward to speaking to you in the not-too-distant future. Thank you everyone.
The conference has now concluded. Thank you for attending today’s presentation, and you may now disconnect.